Monday, November 9, 2009

AES Corp., the U.S. power producer with operations in 29 countries, agreed to sell stock and a 35 percent stake in its wind-power business to China Investment Corp. for $2.2 billion to raise cash for expansion.

A CIC unit will buy 125.5 million in new shares for $12.60 each, or $1.58 billion, Arlington, Virginia-based AES said today in a statement. CIC will own about 15 percent of the power company. AES also signed a letter of intent to sell a 35 percent interest in its wind-power operations to CIC for $571 million.

The transactions will give AES greater financial flexibility and allow the company to move more quickly on project developments, Chief Executive Officer Paul Hanrahan said. AES, which will need approval from the Committee on Foreign Investment in the United States to close the stock sale, also will gain cash for acquisitions.

“This just gives us a war chest of dry powder to execute on mergers and acquisitions,” Hanrahan said in a telephone interview. Access to capital markets has been “choppy,” he added, and any investment AES makes would need to be funded with equity or cash flow.

AES rose 17 cents, or 1.2 percent, to $14.03 in New York Stock Exchange composite trading. The stock has jumped 70 percent this year....MORE

...What is interesting here is that this is a quasi-dollar-exit. AES is a US company, but over two-thirds of its revenues are international and in areas where China has some presence. Because of the approximate $300 billion size of China Investment Corp. and adding in the near-$2 trillion China has in foreign currency reserves, it is hard to say this is a sudden departure. But we have noted on many occasions how China is gathering up oil and energy assets globally, and that is a dual-purpose effort: securing its own natural resources and reserves AND getting off the US Dollar dependence. Neither will happen immediately, but this seems fairly easy to see where it is heading over the long haul.

AES’s stance is that this move will allow the company to unlock the value of its development pipeline and will bolster its balance sheet to allow for more acquisitions and expansion projects as it seeks renewable energy projects and more developments in emerging markets.

While AES reported that its revenue fell to $3.8 billion from a level of $4.3 billion a year ago (mostly due to currency rates), its income grew to $185 million from $145 million. The company raised 2009 guidance to $1.09 EPS versus a prior target of $1.08 but against a Thomson Reuters figure of $1.10 EPS. But this is not an issue over earnings. This is an issue of the great global land and asset grab....